Australia to pursue gas reservation policy: Canavan

Australia is a step closer to a national reservation policy that would ensure industry gets gas that’s now often shipped overseas.

An LNG export facility on Queensland’s Curtis Island.

Australia will pursue a national gas reservation policy to ensure enough supplies are available for manufacturers and heavy industry and introduce a price measure to the gas export trigger to ensure the national market is operating efficiently.

The move by Resources Minister Matt Canavan, foreshadowed by The Australian in December, would see the east coast replicating a system similar to that in Western Australia to provide relief for big gas users still struggling with high tariffs.

“I am going to work with states and territories during the next 12 months to consider options to establish a prospective national gas reservation policy,” Mr Canavan said in a statement. “We can’t repeat the mistakes of the past in just letting our gas be shipped overseas with no thought to our domestic requirements.”

WA’s regulations require 15 per cent of gas reserves at LNG export projects to be set aside for use within the state and Mr Canavan said he would be “mindful” of the major contribution LNG exporters in Queensland had already made to ensuring domestic energy security.

Big LNG exporters including Santos, Origin Energy and Shell stand to be impacted by the new reservation policy if Mr Canavan pushes ahead and implements a scheme this year.

“Maintaining Australia’s place as an attractive investment destination and reliable LNG supplier is a key priority for the Liberal/Nationals Government,” Mr Canavan said.

Resources Minister Matt Canavan. Picture: AAP

The government has been working on a raft of gas policy reforms after agreeing a pact with Centre Alliance senator Rex Patrick to replicate WA’s reservation policy on the east coast.

There has also been a tightening to the LNG export trigger to free up more supplies for users as part of a deal agreed with the minor party after it lent support for the Coalition’s income tax cuts in June.

The Australian Domestic Gas Security Mechanism - which can direct Queensland LNG exporters to divert supplies to the local market if a shortfall is forecast for the following year - will be retained until 2023.

It was created as a response to tight domestic supplies on the east coast and reduced production from the offshore Bass Strait fields in Victoria, but has not yet been triggered since it was introduced in July 2017.

While the government said the ADGSM has helped in halving gas prices to $10 a gigajoule from over $20 a gigajoule in early 2017, it has recommended a number of changes following a formal review of the mechanism.

The competition regulator’s forward LNG netback price will now be part of deliberations when the government determines if there is a case for triggering the gas export mechanism.

“While the ADGSM is not a mechanism to control price, if prices paid by Australian gas users are significantly higher than the ACCC’s netback price, this would serve as an indication that the domestic gas market is not operating efficiently,” the ADGSM review stated. “For this reason, a comparison of an average domestic price with the ACCC’s netback price should be a factor for consideration in assessing the likelihood of a supply shortfall in the Australian domestic gas market.”

Calculations of the gas shortfall attributed to LNG projects in net deficit - known as the Total Market Security Obligation - will also be tweaked after the review found that as currently designed it may not be able to recover sufficient domestic gas to address a market shortfall.

Critics of the mechanism such as certain industrial users argue it has done little to ease high local gas prices but major LNG producers like Origin - which owns a 37.5 per cent stake in the $25 billion Australia Pacific project in Queensland - say gas is flowing to local manufacturers and government intervention only serves to heighten policy uncertainty.